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Hammered by the Recession, Most Human Service Nonprofits Say They're Having Major Problems With Government Contracts
Urban Institute

October, 2010

Wracked by the anemic economy, human service nonprofits helping families and communities weather the recession report "serious and widespread" problems with their government contracts and grants, a new Urban Institute study concludes. These problems include government payments that do not cover the full cost of services, complex and time-consuming applications and reporting requirements, and governments changing the terms of existing agreements and paying contracts late.

       Responding to a national survey by the Urban Institute, 41 percent of human service nonprofits -- groups that address such pivotal concerns as food assistance, public safety, housing, employment training, community and economic development, youth mentoring, and child care -- indicated that government agencies made late payments in 2009. Twenty-four percent regarded delinquent payments as a big problem.

       All levels of government were slow sending checks, but state governments were most likely to be over 90 days late. Late payments were a problem for 83 percent of Illinois nonprofits and 80 percent of those in Maine.

       Sixty-eight percent of nonprofits said they were hampered by federal, state, or local government payments that do not cover the full costs of contracted services. Forty-four percent cited the practice as a major problem.

       Fifty-seven percent reported problems with governments changing contract terms midstream, including cancellations, reduced payments, and postponements, with 26 percent of the nonprofits citing such after-the-fact changes as being a serious problem.

       Seventy-six percent of the nonprofits experienced problems caused by complicated, time-sapping applications, while the same share singled out complex reporting demands. In both cases, 37 percent considered these challenges to working with government to be big problems.

       Overall, 31 percent of respondents nationally (and 57 percent in Illinois) said their experiences with government contracting in 2009 were worse than in prior years. Eighty-two percent reported one or more contracting problems, while 66 percent had at least one big problem.

       Fallout from the Recession

       The recession served a serious blow to human service nonprofits, the authors of "Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants" pointed out. Demand for many basic services climbed as revenues nosedived. Over 40 percent of nonprofits said they faced a deficit in 2009.

       Fifty-six percent of organizations reported less revenue from state governments, 49 percent from local governments, and 31 percent from the federal government. Nonprofit budgets were further strapped by drops in contributions from foundations, corporations, and individuals. Seventy-two percent also experienced declines in savings and investment income.

       To cope with the financial strain, 82 percent of human service providers scaled back their operations, with 50 percent freezing or reducing salaries, 39 percent drawing on financial reserves, and 38 percent reducing staff. Organizations that reported changes in government contracts and grants, late payments, or insufficient payments were significantly more likely to undertake cutbacks than organizations without changes or problems.

       "Government processes differ from agency to agency and often from contract to contract, which exacts a heavy toll on nonprofit providers," the research team noted in a companion brief.

       If projected state budget shortfalls for fiscal years 2011 and 2012 are coupled with declines in donations and investment income and heightened demands for services, many nonprofits may reach the breaking point, the report warned. "Of greater concern is the hollowing of organizational capacity that may take years, if ever, to rebuild."

       Because nonprofits reported fewer problems in some states than in others, "there are bright spots in the findings that could provide models for improving nonprofit-government funding relationships," the researchers pointed out.

       The Study

       "Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants" and the companion brief, "Contracts and Grants between Human Service Nonprofits and Governments," are based on a 2010 national random sample survey of human service nonprofits with more than $100,000 in expenses. Results for each of the 50 states and the District of Columbia are available in a third publication, "National Study of Nonprofit Government Contracting: State Profiles." The reports are at http://www.urban.org/nonprofitcontracting.cfm .

       The study was conducted by Elizabeth Boris, Erwin de Leon, Katie Roeger, and Milena Nikolova of the Urban Institute's Center on Nonprofits and Philanthropy. It is part of a collaborative project of the Urban Institute and the National Council of Nonprofits. The project was funded by the Bill and Melinda Gates Foundation.

       Nearly 33,000 human service nonprofits had government contracts and grants last year, which provided the single largest source of revenue for 62 percent of them. The nearly 200,000 contracts totaled about $100 billion.

       ABOUT THE URBAN INSTITUTE

       The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance challenges facing the nation. It provides information, analyses, and perspectives to public and private decisionmakers to help them address these problems and strives to deepen citizens' understanding of the issues and trade-offs that policymakers face.



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